Reconciliation Bill Casts Uncertainty on the Future of the Affordable Care Act

January 13, 2016 | Nathan Baugh

The Restoring Americans’ Healthcare Freedom Reconciliation Act of 2015 was recently passed by Congress and vetoed by the President on January 8, 2016. The veto is sure to be upheld as opponents do not have enough votes to override. Unlike other bills that repealed the entire Affordable Care Act (ACA) and fell short in the Senate, this bill repealed only portions of the ACA, passed the Senate and made it all the way to the President’s desk. A politically significant achievement for Republicans, and signal to the American public of what could be achieved with a Republican in the White House.

This legislation is more colloquially referred to as the “reconciliation” bill because of the legislative procedure used to pass it.

While many have labeled this legislation as a “repeal” of the ACA, the legislation did not fully repeal the law. Rather, it ended certain key aspects of the ACA related to the budget. While it would significantly undermine the ability for the ACA to work as intended, it does not change policies in the ACA such as the prohibition against insurance companies to deny people with pre-existing conditions or the ability of young people to stay on their parent’s insurance plan through age 26.

Instead, by focusing on items only related to the budget, the reconciliation bill was allowed to be passed via the “Budget Reconciliation” process which is important because it is not subject to the Senate’s filibuster rules, and thus may pass with a simple majority of Senators. The Democrats ability to filibuster traditional legislative efforts has prevented any sort of “repeal” bill from reaching the President’s desk despite numerous successful votes in the House of Representatives to do so. However, this bill demonstrates that sticking solely to budgetary items can achieve almost the same effect as repealing the ACA outright. The following aspects of the ACA were significantly affected by this Reconciliation Bill:

Immediately eliminates funding for the Prevention and Public Health Fund.

This was a fund used by Health and Human Services (HHS) to set up various public health programs aimed at preventing disease. Republicans question the cost effectiveness of these Federal Programs and argue that the funds could be better spent elsewhere or not spent at all.

Eliminates the Risk Corridor Program

The Risk Corridor Program was established as a way to assure health insurance companies offering plans on the health exchange would not have to accept much risk. The concept involved taxing those health plans that were profitable and then paying out those health plans which had lost a significant amount of money. This program was created to entice health insurance companies to offer affordable premiums. The first year of the risk corridor revealed a severe shortfall between the amount of taxes yielded on profitable plans and the amount of risk adjustment owed out to the struggling plans. Republicans argue that eliminating this program would force insurance companies to properly calculate their premium offerings, which may lead to higher premiums.

Repeals the premium tax credit individuals can qualify for in the healthcare exchange.

A centerpiece of the ACA. These premium tax credits were made available for those earning between 100% and 400% of the Federal Poverty Line buying insurance in the individual market created by the ACA. Access to these tax credits was the biggest incentive offered in the ACA to buy insurance.

Repeals the small business tax credit

This tax credit was offered to certain small businesses with average annual wages less than $50,000 if they paid for a uniform percentage of all employees premiums.

Repeals the individual mandate by completely eliminating the penalty for not having insurance

The metaphorical “stick” to the “carrot” of the premium tax credit. The penalty for not having insurance, sometimes called the “individual mandate” would be reduced to zero in this bill. Penalties for not having health insurance have steadily increased from $95 in 2014, to $325 in 2015, and now to $695 in 2016.

Repeals the employer mandate by also eliminating the penalty for not providing insurance to employees.

The “employer mandate” imposes heavy fees on employers who did not provide insurance to a specified percentage of their workers beginning in 2016. There are separate sets of rules for companies with 50-99 employees, and companies with over 100 employees. Aspects of this provision were delayed several times but began in 2015 and were expanded in 2016.

Repeals Medicaid Expansion by eliminating the extra Federal funds for states that have expanded their Medicaid program.

Medicaid expansion was initially mandatory for all 50 states, but a Supreme Court ruling determined that States should have the right to opt-out if they want. The expansion would expand Medicaid to families with incomes up to 138% of the poverty line as well as single adults who were not previously eligible. Since Medicaid is administered by the State governments, the Federal government offered to assume all of the costs of adding these new beneficiaries initially. However, beginning in 2017, the federal government would only pay for 95% of the costs, and only 90% of the costs beyond 2020. Many states have opted not to expand Medicaid due to the added cost concerns it would place on state budgets.

Repeals Cadillac Tax

The Cadillac Tax, as we explained in this blog post, was designed to reduce unnecessary medical utilization by those with the most comprehensive, expensive plans. Wary of any new taxes that could increase the cost of healthcare for consumers or employers, Republicans and some Democrats have longed worked to get rid of this tax. The recently passed Omnibus deal of 2015, delayed implementation of this tax to 2018.

Repeals Medical Device Excise Tax

The Medical Device Excise tax is a 2.3% tax on manufacturers of medical devices. The tax was justified as a way to pay for other aspects of the ACA by taxing an industry that was supposed to benefit from the law (due to more people having insurance). The tax took effect in 2013, but has proven to be unpopular and was suspended for 2016 and 2017 as a part of the Omnibus package approved in December 2015.

While some of these changes were to take effect immediately, the elimination of the tax credits to individuals and small businesses, as well as the Medicaid Expansion repeal, would not occur until 2018. The reconciliation bill was designed this way to give Republicans two years to pass an alternative to ACA that would supplant the tax credits or “subsidies” as they are sometimes called.

As a whole, this reconciliation bill would significantly undermine the ACA’s ability to function as intended, which is of course the purpose of the bill. If the 2016 elections result in Republican majorities in the House and Senate, and a Republican president, then a bill very similar to this would almost certainly be passed and signed into law. However, only time (and an election) will reveal how this all plays out.